Restructuring the Relations between the State, Market and Society in China

The Fourth Plenary Session of the 18th Party Congress of the Chinese Communist Party (CCP) decided that modernizing the state governance system and the state’s governing capacity will be the general goal of further reform in the near future. This is of great theoretical and practical significance for China’s political development and the entire modernization drive in the future. Theoretically speaking, modernizing the state governance system and the state’s governing capacity is an entirely new political idea, and it is an important theoretical sign of the transformation of the CCP from a revolutionary party into a governing party. Practically speaking, it shows that the CCP has formally incorporated political modernization into the reform agenda. Modernizing state governance will necessitate a change in the relationship between the government, the market and society.

The reason why the CCP decided to prioritize modernizing the state governance partly results from its success in the past 35 years of reform and opening up. China’s success in reforming governance has been crucial for China’s swift economic development and the successful transformation of society since the reform. In the last 35 years, Chinese society has undergone great changes, and China’s modernization has achieved tremendous successes that are unparalleled in the world’s history of economic development. One basic reason is that China has not only carried out thorough reforms in its economic system, but has also made major changes in its state governance system, and restructured the relationship between the government, the market and society.

China’s first step was to restructure the relationship between the government and the market. Before reform, China had a planned economy; the state directly controlled all important means of production; and production was completely decided by the government. No private economy was permitted to exist, and free trade and other forms of market economic activities were forbidden. The government and enterprises were highly integrated and the government directly controlled production. China’s economy was a planned economy in name but a command economy in fact. This kind of economic governance severely restricted the creativity of Chinese society and caused the whole Chinese economy to languish at an extremely low level and the Chinese people to live in deep poverty. The breakthrough point Deng Xiaoping chose in instituting reform was to introduce a competitive market economy by separating its economic and administrative functions, and implementing the contract system of responsibility with remuneration linked to output. After this, the Party and the government no longer directly interfered in farmers’ economic activities. In addition, China introduced a modern enterprise system in the cities and separated government functions from enterprise management. After this, the Party and government no longer directly managed enterprises, and enterprises became legal persons and made their own management decisions. This new kind of market governance system released the productive forces of society, with the result that over the past 35 years China’s GDP grew at an average annual rate of over 9% and the Chinese economy became the second largest in the world.

The second step was to restructure the relationship between the state and society. A relatively independent civil society began to emerge. In the late 1980s, villagers’ self-governance was instituted in the countryside followed by residents’ self-governance in the cities. This was a breakthrough development in grassroots democracy, and also an important advance in the sharing of powers between the state and society. After a new round of government agency reform in the 1990s, a number of government agencies were transformed into industrial associations; for example, the Ministry of Light Industry was transformed into the China Light Industry Association, and the Ministry of Textile Industry was transformed into the China Textile Association. At the same time, a number of management functions originally carried out by the government were transferred to these industrial associations, which was an important step in occupational self-governance. In the late 1990s and the beginning of the 21st century, large numbers of civil organizations appeared and the government began to change its attitude from a negative attitude of prohibition to a positive attitude of encouragement. The government also began to allow them to participate in social governance, and it delegated some state powers to designated social organizations. As of now, China has at least three million social organizations of various kinds, and they play an ever-more-important role in China’s political life, for example by purchasing public services and participating in social governance.

The third step was to restructure the relationship between the market and society. The implementation of a market economy and the rise of civil society quickly brought a new question to the fore: the mutual encroachment of the market and society on each other. On the one hand, market activities made significant inroads in a number of areas in the public arena, such as compulsory education, charitable aid and public health, which quickly led to the commercialization of society, the appearance of a new education crisis, and a crisis in credibility and ethics. On the other hand, both the government and society excessively interfered in enterprises and the market in the name of public interest and social responsibility, which imposed a heavy social cost on enterprises that many could not bear. It became very important to draw a boundary between enterprises and society. Starting in the late 1990s, China began adopting ways of defining the relationship between the market and society. For example, a new system of social responsibility for enterprises was established, and enterprises were no longer required to perform excessive political-social functions. Private enterprises were encouraged to develop, while at the same time the scope of civil organizations’ for-profit activities was specified and those activities were restricted.

Restructuring the relationship between the government, the market and society is, in fact, a kind of political governance transformation . On the one hand, the Chinese government constantly reiterates that it will not slavishly follow the Western political model of multi-party competition, general elections and the separation of the three powers; and on the other hand the Chinese government stresses political reform, particularly the reform of state governance.

If you look at Chinese politics over the last 30-plus years solely from the perspective of multi-party competition, general elections and the separation of the three powers, you could well conclude that nothing has changed. However, if you look at it from the perspective of state governance, you will discover that Chinese political life has undergone tremendous changes during that time. For example, in terms of the rule of law, public participation, democratic decision making, social governance, public services, government accountability, political transparency, administrative efficiency, government approval procedures, decentralization and the development of social organizations, we can see enormous changes and a clear direction: from unity to diversity, from centralization to decentralization of power, from the rule of man to the rule of law, from being closed to being open, and from regulatory government to service-oriented government. The success of China’s economic development and social transformation, and its ability to continue its long-term economic development while maintaining basic stability to a large extent derives from the successful reform of China’s governance.

There are three important findings we can reach in the process of restructuring the relationship between the government, the market and society since Reform began.

First, the structural foundation of modern society is the differentiation between the political, economic and civil system. In pre-modern society, the government, the market and society were intimately integrated; there was no clear boundary between political, economic and social systems; civil society and economic society were obliterated by political society, and the state controlled everything in society. However, after the human race entered the modern age, society began to be segmented into three mutually independent realms: the state system, which has government organizations as its foundation and officials as its main representatives; the market system, which has business organizations as its foundation and business people as its main representatives; and civil society, which has nongovernmental organizations as its foundation and citizens as its main representatives. The relationship between each constitutes the structural foundation of modern society and determines the relations of modern society. The basic function of the modern state is demarcating boundaries of the powers and responsibilities of the government, the market and society, and its basic mission is to render unto the government what belongs to the government, render unto the market what belongs to the market and render unto society what belongs to society.

Second, the state governance system is a set of institutions and procedures for standardizing the functions of social powers, and safeguarding public order. It includes a set of institutions and procedures for standardizing administrative, market and social conduct. Correspondingly, government, market and social governance are the three most important sub-systems of a modern governance system. That is to say, a state governance system is a system of institutions made up of the state’s administrative, economic and social systems. Effective state governance requires the answer to three questions: Who governs? How do they govern? And how well do they govern? These three questions pertain to the three main elements of state governance: the governing body, governing institutions and governing tools.

Third, neither the government, the market nor society is omnipotent; it is necessary for them to be complementary and balanced. In pre-modern society, government was effectively omnipotent and its powers were unlimited. However, in modern society, not only is government not omnipotent, but also the scope of its powers is constantly contracting and the constraints civil society and the market system impose on it are constantly increasing. It is not only the government that is not omnipotent; but also the market and society. As this situation is prone to result in human error, two things need to be done to overcome failure: one, the government, market and society need to cooperate and use their strengths to compensate for the others’ weaknesses; and two, the three should preserve equilibrium between them. State governance fails if the government becomes too powerful and also if it becomes too weak. However, the allotment of powers between the government, the market and society in state governance should be expected to vary between different countries and within the same country at different stages when national conditions differ. In China the CCP and the government play an overwhelming role in the country’s governance.

In short, the ideal kind of state governance is good governance. Stated simply, good governance is governance in which public interests are maximized, and its basic characteristic is that the relationships between the state, the market and society are the best they can be so that each segment can coordinate in governing social and political affairs. However, governments have always been without question by far the most powerful segment of society, and no other can be considered their equal. Therefore, in modern state governance, the government still plays a larger role than the market and society. In other words, the key to good governance is good government, and if you want to have good governance you must first have good government.